Bottom Line
Middle-Class Families: Mixed Tax Picture (Go to the Kiplinger Tax Map for Middle-Class Families)
Retirees: Not Tax-Friendly (Go to the Kiplinger Tax Map for Retirees)
Minnesota's income tax rates start at 5.35%, which isn't a good sign for residents. Nevertheless, the income tax burden in the North Star state for most middle-income taxpayers is decidedly average. But seniors run the risk of having the state tax a part of their Social Security benefits and pensions.
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Property tax rates are slightly above average in Minnesota. Sales tax rates in the state are higher than average, too. Plus, the state imposes an estate tax.
Minnesota Income Taxes
Minnesota Income Tax Range
Low: 5.35% (on less than $28,080 of taxable income for single filers and on less than $41,050 for joint filers)
High: 9.85% (on more than $171,220 of taxable income for single filers and on more than $284,810 for joint filers)
For 2023, the lowest rate applies to the first $30,070 of taxable income for single filers and the first $43,950 of taxable income for joint filers. The highest rate applies to taxable income over $183,340 for single filers and over $304,970 for joint filers.
Minnesota Taxation of Social Security Benefits
Social Security benefits are taxable in Minnesota, but for 2022 a married couple filing a joint return can deduct up to $5,450 of their federally taxable Social Security benefits from their state income ($5,840 for 2023). The 2022 tax break can be as much as $4,260 for single and head-of-household filers ($4,560 for 2023), and up to $2,725 for married taxpayers filing separate returns ($2,920 for 2023). The deduction is gradually phased out for married couples with provisional income from $82,770 to $110,020 ($88,630 to $117,830 for 2023). The phase-out range for single and head of household filers is $64,670 to $85,970 ($69,250 to $92,050 for 2023). For married taxpayers filing separate returns, the phase-out range is $41,385 to $55,010 ($44,315 to $58,915 for 2023).
Minnesota Tax Breaks for Other Retirement Income
Income from a military retirement plan is exempt. In the alternative, taxpayers with federal adjusted gross income of $37,500 or less who have a military pension can claim a credit of up to $750.
Taxpayers 65 and older can deduct up to $9,600 for single filers or $12,000 for joint filers. The deduction is phased out for taxpayers making more than $14,500 (single) or $18,000 (joint). Taxpayers making more than $33,700 (single) or $42,000 (joint) cannot claim the deduction.
Railroad Retirement benefits are also exempt.
Minnesota Sales Tax
6.875% state levy. Localities can add as much as 2%, with an average combined rate of 7.49%, according to the Tax Foundation.
- Groceries: Exempt
- Clothing: Exempt
- Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 6.5% excise tax ($10 for certain older vehicles; $150 for certain collector vehicles)
- Prescription Drugs: Exempt
Minnesota Real Property Taxes
In Minnesota, the median property tax rate is $1,021 per $100,000 of assessed home value.
Minnesota Property Tax Breaks for Retirees
The Senior Citizen Property Tax Deferral Program allows people age 65 or older, whose household income is $60,000 or less, to defer a portion of the property tax on their home. The program limits the maximum amount of property tax that has to be paid to 3% of total household income; the state pays the rest, as a loan. Interest, at an annually adjusted rate not to exceed 5%, will be charged on this loan, and a lien is attached to the property.
Minnesota Motor Fuel Taxes
Gasoline: 30.6¢ per gallon.
Diesel: 30.6¢ per gallon.
Minnesota Sin Taxes
Cigarettes and little cigars: $3.703 per pack, which includes excise tax plus special sales tax ($3.732 in 2023)
Premium cigars: the lesser of 95% of the wholesale price or $0.50 per cigar
Moist snuff: the greater of 95% of the wholesale price or $3.04 multiplied by the ounces and divided by 1.2
Other tobacco products: 95% of the wholesale price
Vapor products: 95% of wholesale price
Beer: $0.15 per gallon
Wine: $0.30 per gallon ($1.82 per gallon for sparkling)
Liquor: $5.03 per gallon
A 2.5% gross-receipts tax is also due on all alcohol purchases, in addition to sales tax.
Minnesota Estate and Inheritance Taxes
Minnesota's estate tax exemption is $3 million, but the state looks back to include any taxable gifts made within three years prior to death as part of your estate. Tax rates range from 13% to 16%.
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